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A question of confidence

We sincerely hope it’s a rising level of public and institutional confidence in our financial system. That would do more, at this point, to bail out the economy than anything else. But even if confidence rises, more legislative action is likely.

Based on comments made Tuesday by people as diverse as Colorado’s Democratic senatorial candidate Mark Udall and Republican presidential nominee John McCain, some sort of legislation to give money directly to homeowners with mortgage problems is likely on the horizon. It could be addressed in a lame-duck session after the election, Udall told this newspaper.

Additionally, New York Sen. Charles Schumer this week called for an emergency infusion of funds to the Small Business Administration to provide short-term loans to troubled small businesses.

And Federal Reserve Bank Chairman Ben Bernanke Tuesday announced a program to have the Fed lend money directly to businesses for the first time since the Great Depression. The plan calls for short-term loans, known as “commercial paper,” to help businesses meet payroll and purchase inventory.

It’s not just in the United States. In Great Britain, government leaders on Wednesday announced a bailout plan to assist ailing banks there that will cost 500 billion pounds. And central banks across Europe and parts of Asia joined the Federal Reserve in cutting interest rates Wednesday.

If you’re having trouble determining what it all means, join the club. Stock market investors seemed equally uncertain this week. They sent stock prices plunging again Tuesday when many of the latest efforts were being discussed. Prices plummeted again Wednesday, then rallied, only to fall back significantly for the day. Who knows what tomorrow will bring?

We are certain that the key question is no longer one primarily of government intervention, but of citizen and institutional confidence.

There were reasons to dislike the legislation passed by Congress last Friday to aid the financial industry, but the idea that it was designed to help wealthy Wall Street types at the expense of average citizens is not one of them. The primary reason for the legislation was to alleviate the credit crisis and ensure more money is available for lending. Without that, the crisis is not just on Wall Street, but in homes and businesses throughout the country.

News reports show money for college student loans has become increasingly difficult to obtain this year. Small Business Administration loans have decreased as much as 30 percent — depending on the type of loan — over the last year. And most people are aware that receiving approval for consumer loans and home mortgages is much harder than it used to be. Without action at the federal level, money for
borrowing at the local level would become even less available.

The uncertainty among investors and average citizens isn’t likely to disappear, however, until people see that all of the various government efforts are having an impact. And that will require large commercial banks to open up the lending spigots that have been all but shut off recently. More money is needed to loan bank-to-bank, bank-to-business and bank-to-consumer. And, with yet another cut in the prime interest rate this week, that money should be available at low interest rates.

Few people would argue for a return of the everyone-qualifies lending policies of a couple years ago, but some loosening of the credit markets is definitely needed.

No one likes relying on the federal government to bail out the U.S. economy, but that’s what the Federal Reserve Bank was designed to do when things get bad. The biggest problem ailing us now isn’t the inability to stabilize the situation, it’s the lack of public confidence overshadowing the importance of what is being done.

So many people are focusing on the inequities of rich CEOs, contrasted against shareholders who lost much of their investments. It’s a troubling contrast, no doubt, but it should have no bearing on the bold actions we must take. We’re not giving greedy executives taxpayer money. We’re freeing up credit and commercial paper markets. And if we don’t do it with some public confidence, we can expect to see more global panic and economic strife.